The government's drive to support home ownership continues apace. The Housing and Planning Act 2016, in force since May of this year, provides a statutory framework for the delivery of 'Starter Homes'. But what are they and what implications are they likely to have for Registered Providers (RPs)?
What is a starter home?
Starter homes are defined as:
- A new dwelling
- Available for purchase by qualifying first-time buyers
- At a price at least 20 per cent less than market value
- Attracting restrictions on re-sale or letting
Typically, a starter home is not expected to be priced more than the average price paid by a first time buyer after the 20% discount is applied. This would mean the discounted price should be no more than £450,000 in London and £250,000 outside London. If the buyer of a starter home wants to resell or lease the property within 8 years of buying, a taper mechanism will be applied under which the amount of repayment required or the discount applicable during the proposed 8 year restriction period on resale will be reduced. After the proposed 8 year period, an individual can sell the property on the open market free of any restrictions.
Local planning authorities will be obliged to promote the supply of starter homes when exercising planning functions and comply with a specific duty in relation to decisions on planning applications.
What does this mean for…
It's early days yet as the detail is still awaited but the provision of starter homes is intended to be in addition to other forms of affordable housing such as Affordable Rent and Shared Ownership. This could clearly raise viability issues for the overall development as well as impacting cash flow. The up-front sale of affordable units to an RP is inevitably going to be more reliable than private sales where the potential buyers are restricted.
... Registered Providers?
As most RPs are charities, their objects are, accordingly, charitable. The effect of this is that RPs can undertake development of, and purchase, affordable/social rented properties and other forms of low cost home ownership housing because in the majority of cases this satisfies their charitable objects.
RPs may not undertake development of market sales properties, except in very limited circumstances. Apart from the fact that this would take them outside the limits of their express powers and gives rise to issues around trustee liability, there are potential corporation tax issues flowing from non-charitable trading, which may well affect the viability of the development appraisal.
Whilst it is tempting to think of starter homes as just another form of low cost home ownership, and therefore charitable, this is by no means clear. Each development should be considered on a case by case basis, and appropriate legal advice sought if required to ensure that the proposed development will satisfy charitable objectives.
Despite the original fanfare, it is unclear how much support there will be for the starter homes scheme from the new government. Although regulations to bring the starter home provision into effect were anticipated in October, at the time of going to press, they are still awaited. Whatever the outcome, it is always important to remember that government priorities for affordable housing do not necessarily mean that all such products are charitable and appropriate caution should be exercised.
Please contact Jacqueline Knox for further information.